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The Securities and Exchange Commission, the federal agency that is supposed to protect investors from Wall Street predators, says it is going to investigate how it missed the Bernie Madoff scam. San Diego’s Gary Aguirre, speaking from personal experience, knows that’s impossible. Any securities agency probe will be a cover-up.

New York’s Madoff ran a $50 billion Ponzi scheme. The securities commission admits that allegations about Madoff’s scheme had been repeatedly brought to the agency’s attention since 1999. “I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations,” proclaimed the agency’s Bush-era chairman, Christopher Cox, last month, announcing the supposed self-probe.

Balderdash. The only thing Cox is “gravely concerned” about is that the American public might finally understand the agency’s actual mission. For as Aguirre, a former attorney for the agency, points out, the Securities and Exchange Commission (SEC) does not exist to protect investors from Wall Street predators. It exists to protect powerful Wall Street predators from investors.

The notion that the agency can probe its own officials is hilarious — a real knee-slapper. In late December, Senator Arlen Specter (R-PA) heaped scorn on the securities agency’s ability to investigate itself in the Gary Aguirre case. Now the agency says it will open that probe again. “Reopening the investigation marks a new embarrassment for the beleaguered S.E.C., suggesting that, as in the Bernard Madoff case, it may have failed earlier to follow up adequately on strong indications of possible wrongdoing,” says Portfolio.com.

Aguirre puts it more strongly: the securities agency “cannot be trusted with an investigation of itself, especially when the investigation [involves] the highest levels of the SEC.”

Aguirre’s case lays bare everything that the securities agency is: a whorehouse catering to Wall Street’s elite. After a long and successful career practicing law in San Diego, Aguirre, brother of former City Attorney Mike Aguirre, decided to try public service. He joined the agency and began looking into a possible insider-trading case. A hedge fund, Pequot Capital Management, had made a bundle buying up stock in a firm just before the announcement that the firm would be acquired by another company. Pequot had also made money betting that the stock of the acquiring company would go down, as is normal. Before Pequot made those bets, John Mack, the hedge fund’s former chairman and a current investor, had talked with both the investment banking firm handling the acquisition and with Pequot’s current chairman, a close personal friend.

Aguirre wanted to interview Mack. But his boss said Mack had big Washington connections — specifically, to President George W. Bush. Aguirre protested. Just weeks after he had been given a strongly positive job review, Aguirre was fired. The Senate’s Committee on Finance and Committee on the Judiciary did a 108-page study on the matter.

There were some hair-raising findings. While Aguirre was trying to get the Mack interview, an attorney at the Debevoise and Plimpton law firm sent Paul Berger, Aguirre’s boss, an email with the opening words “Yowza!” It described how an ex-SEC lawyer could make $2 million a year with the firm. One of the top attorneys at the Debevoise firm contacted a senior official of the securities agency on behalf of Mack and behind Aguirre’s back. After he fired Aguirre, Berger took a job with Debevoise. Similar quid pro quos are called the “revolving door” phenomenon — agency officials do dirty work while at the commission and then go with a big law firm representing the crooks who got off. Mack wiggled off the hook and went on to become chief executive of Wall Street’s Morgan Stanley.

The two Senate committees vindicated Aguirre, denouncing his firing and concluding it was logical that he interview Mack. Then the agency’s inspector general, H. David Kotz, authored a 191-page study of the case. Kotz basically agreed with the two Senate committees. He recommended that the agency discipline its enforcement director and one other official. Kotz, too, blasted the ease by which the Wall Street law firm got special access to securities agency officials. He questioned the “impartiality and fairness” of the agency’s handling of the Mack investigation and firing of Aguirre.

Then the agency’s cover-your-ass team went into action. An administrative law judge, one Brenda Murray, was assigned to second-guess Kotz’s report. Just a few weeks later, her 15-page paper exonerated the two officials who Kotz said should be disciplined. Kotz was shocked and said so publicly.

Now we get to the heart of the agency’s double-dealing. As Senator Specter stated, Brenda Murray “was described in press accounts as an administrative law judge, and it was not until further inquiry that the SEC admitted she was not acting in a judicial capacity in issuing her decision.” In short, the agency picked a loyal staffer who happened to have the title “administrative law judge” and had her exonerate the officials who had been sharply criticized by the Senate committees and by the inspector general. But she was not acting as a judge at all — just a soldier taking orders.

Murray’s quickie report “was completely irregular in every detail,” says Aguirre. “It was outside the jurisdiction of an administrative law judge. The SEC pulled a scam.”

Senator Charles Grassley (R-Iowa), who spearheaded the investigation with Specter, said, “[I]t looked like the lawyers for the wrongdoers wrote the decision.”

Columnist Bruce Carton of Compliance Week wrote that agency staffers were stunned at the whitewash; Murray did not use the standard procedures for reviewing an internal-discipline recommendation. “Murray made her decision that discipline was not appropriate based almost exclusively on the one-sided information she received from counsel for the various subjects,” wrote Carton. “This information was not subject to any cross-examination or any follow-up by the [inspector general’s] office or other parties involved, and additionally was not provided under oath.”

One prominent attorney said that in Murray’s whitewash, the securities agency had merged “the functions of prosecutor, judge, jury, and appellate tribunal” under the same roof.

It gets even worse. One reason the Pequot case is being reopened is that a divorce suit has revealed that the hedge fund agreed to pay $2.1 million to a former Microsoft employee who was apparently feeding information on his former employer. “Pequot made a boatload of money” betting on Microsoft securities, based on such information, says Aguirre, but the agency found a way to drop the Microsoft angle of the investigation. But Aguirre has come up with new facts that have forced the agency to reopen the probe.

There’s more: In the same report in which she cleared Aguirre’s nemeses, Brenda Murray vindicated an agency official who closed an investigation into the derivatives dealings of Wall Street’s Bear Stearns in 2007. Early the next year, the Wall Street firm was rescued from bankruptcy when it was forced into J.P. Morgan, backed by $29 billion of federal money. Bear’s derivatives gambling was to blame. The agency missed it and then exonerated itself.

And the agency is going to look into whether it did its job properly in the Madoff case? Come now.

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LLuaP Jan. 21, 2009 @ 8:10 p.m.

Is there any question that the SEC has been corrupted by those they were supposed to keep a watch on?

I applaud you and your publication for bringing more light to this scandal.


Don Bauder Jan. 21, 2009 @ 10:52 p.m.

Response to post #1: There is absolutely no question that the SEC is beholden to the big Wall St. law firms that represent securities crooks. This is not the first piece that I have had on this topic. Best, Don Bauder


D_Patch Jan. 22, 2009 @ 6:32 a.m.

What is most concerning about this is that not only have two Congressional investigations and an OIG investigation concluded similarly but that after the issue with Ms. Murray was exposed, the SEC did nothing to rectify it. I anticipate that we will have seen the end of Linda Thomsen and some of her staff real. Each will suddenly announce intent to move to the private sector while behind the scenes the new administration will have simply asked them to leave or be terminated. Something should be done about Murray as well. She has a history of "questionable" calls.


Don Bauder Jan. 22, 2009 @ 7:06 a.m.

Response to post #3: But will Mary Schapiro, Obama's choice to head the SEC, really reform it? She has been around Washington for years. I don't know that she is in the pocket of any Wall Street banks or law firms, but is not one to challenge the system, even though she knows it is completely corrupt. Had Obama wanted to make a reform statement, he would have named Nell Minow of Corporate Library as head of the SEC. Wall Street's bandits -- bankers, brokers, their lawyers -- would have known immediately that the thievery of old would be gone. Best, Don Bauder


jerome Jan. 22, 2009 @ 8:15 a.m.

the only probes that will be done,will be anal probes, after , we put Bernie Madoff in jail for his alleged ponzi scam......that will happen; and also; as far as san diego goes;sedc and ya all no about the other two redevelopment agencys corruptors also will get their share of jailhouse justice........


oldepro Jan. 22, 2009 @ 8:17 a.m.

Dear Mr. Bauder, A stunning piece. You have done your homework. I beg you to continue. Expose these people for what they are. The story needs to be told. So far, the media has treated the SEC with kid-gloves, we need a bare knuckles fight. You seem to be the man. Please stay with this story. I agree with your assessment of Mary Shapiro. I watched the confirmation hearings. I was less than impressed. As for Judge Murray, impeachment is the only answer. Mr. Aguirre did what very few are willing to do, stand up for what is right. He is truly an American hero. Thank you Gary Aguirre. Who should run the SEC? Nell Minow or Patrick Byrne would be wonderful. But in my mind the job should rightfully go to one man. Gary Aguirre. Mr. Bauder, I thank you and anxiously await future coverage.


Don Bauder Jan. 22, 2009 @ 10:01 a.m.

Response to post #5: Madoff will have to go to prison because there has been so much media coverage. The same was true of Enron and Worldcom. But if the media don't give much coverage to a stock market swindle, or the media are tucked away in a remote location such as San Diego, the crooks will go free with both the SEC and Justice Department. Best, Don Bauder


Don Bauder Jan. 22, 2009 @ 10:16 a.m.

Response to post #6: I will continue to cover the SEC's corruption. I have previously written at length about the Gary Aguirre matter, and devoted a good deal of space to a San Diego case. After Peregrine Systems collapsed in scandal, and it was clear that fraud was abundant, its chairman, John Moores, brought in his personal attorney, Charles La Bella, to spearhead a study by the law firm of Latham & Watkins. Moores had dumped $650 million of stock, almost all he controlled, before the collapse. During one period, the Peregrine lawyer warned board members not to sell. They knew about a pending acquisition that was expected to depress Peregrine stock. To sell would be blatant insider trading. Moores sold anyway -- dumping over $100 million during the period leading up to the acquisition. Predictably, the Latham & Watkins "study" exonerated board members and pointed the finger at little people who had sold only a small amount of stock. The lawyer who was in charge of the SEC investigation, Lawrence West, then was hired by Latham & Watkins.


D_Patch Jan. 22, 2009 @ 10:34 a.m.

Don, I have my concerns over Shapiro as well but have been told from insiders that she will come in and do some house cleaning. Unfortunately, people in Washington say a lot to get the job and then fail to execute what they say they were going to do. Only time will tell on that one.

Ultimately the failure of the SEC rests with congress because like the SEC they have thrown soft punches at best when it came to reforms and oversight of our Capital Markets. Cox did not fail this month or last, Cox was failing years ago and the public upheavel from his failings was being silenced by lobbyists. There was no deeper investigation and there were no follow throughs. Congress never addressed the issues in oversight hearings which is why, after Aguirre was exhonerated we never heard a peep again. If we are to have Congressional Oversight those on the Committee must be held equally accountable when an agency they oversee has failed as miserably and as quickly as the SEC has failed.


oldepro Jan. 22, 2009 @ 10:51 a.m.

Dear Mr. Bauder,

§ 3105. Appointment of administrative law judges

Each agency shall appoint as many administrative law judges as are necessary for proceedings required to be conducted in accordance with sections 556 and 557 of this title. Administrative law judges shall be assigned to cases in rotation so far as practicable, and may not perform duties inconsistent with their duties and responsibilities as administrative law judges.

In your opinion, did Judge Murray violate this statute? The following is from today's article:

"Columnist Bruce Carton of Compliance Week wrote that agency staffers were stunned at the whitewash; Murray did not use the standard procedures for reviewing an internal-discipline recommendation. “Murray made her decision that discipline was not appropriate based almost exclusively on the one-sided information she received from counsel for the various subjects,” wrote Carton. “This information was not subject to any cross-examination or any follow-up by the [inspector general’s] office or other parties involved, and additionally was not provided under oath.”" Your answer is very important to me. I understand it will be your opinion. Thank you.


iness Jan. 22, 2009 @ 10:52 a.m.

Don Bauder excelent job done on this article.

I am cmkm diamonds shareholder and have been following SEC moves for years. I was amazed when the agency’s inspector general, H. David Kotz, was brushed off after his investigatio by "inhouse administrative law judge" Brenda Murray, and now we find out later she was not even acting in judicial capacity.

First the last thing SEC needs is "in house" law judge since they are so corrupt from top to bottom, and second if she did not act in judicial capacity then Inspector Kotz should nulify her act as it should be done by miminum somebody acting in judicial capacity.

This really puts damper on what is it that Kotz can do at all? He was the one called to speak in front of senate and explain how is it that SEC missed for 20 years that Madoff had a scam going on.

And all he could say is that he did not personaly get any complaints or whistle blowers information on Madoff case because it all went to SEC staff that off course covered it up.. just like with Gary Aguirre.

But what is Kotz going to do now .. about Judge Brenda Murrey who actualy played Kotz, put out the statement but did not legaly act in a judicial capacity in issuing her decision ?

When the corruption stinks to the high heavens all the way to president Bush.. who thank god is not president any more... how do you change it?

Well certainly not by having "in house" loyal staffer administrative law judge acting outside the jurisdiction of an administrative law judge.

"The SEC pulled a scam.”

No kidding. Honest people cant work long for SEC for long. They are ousted just like Gary Aguirre was.

Sec has been playing with their writeups about naked shorting of the stocks for years now. You will not find one action against any broker or financial participants in all these years that SEC has taken against illegal issuing of phantom shares or naked shorted shares..

What it is is countefeiting of shares.. but that sounds too matter a fact as to what it is.. so they prefer to publicly call it failed to deliver shares.

SEC protects the corruption of Wall street participants.. so their days are too bussy covering up their own acts in front of public they should be protecting..complete collusion of greed on the backs of American investing public.


A_Friend Jan. 22, 2009 @ 1:50 p.m.

Morals/Ethics vaporized, overcome via Greed; Fraud; Corruption in an incestuous nature throughout Broad & Wall; The "Hill"; Corporate Board rooms as well as regulatory/judicial (numerous) agencies.

Palms lathered in CONgreased [sic] (aye the Off-Shores) at the hands of parasites on "The Steet" while igniting Global CONtagion.

Orchestrated; Executed Knowingly and Intentionally.

Lawlessness; Free-For-All.

A Cancer is born.

Gut It!!


Don Bauder Jan. 22, 2009 @ 3:35 p.m.

Response to post #9: Cox should never have been named to that post in the first place. I wrote a column on that as soon as he was appointed. Ironically enough, it was Mike Aguirre, Gary's brother, who pointed out Cox's incompetence (to put it mildly). They had squared off in an Orange County suit that Aguirre won. Now, Cox's incumbency should be investigated. But I fear it won't happen. Obama has indicated that he won't dig up the past. Best, Don Bauder


Don Bauder Jan. 22, 2009 @ 3:42 p.m.

Response to post #10: Whether she stepped outside her duties as administrative law judge is something that both the two Senate committees and Kotz should investigate. The two senators, Specter and Grassley, were certainly unhappy about it. Best, Don Bauder


Don Bauder Jan. 22, 2009 @ 3:46 p.m.

Response to post //311: I am aware of the CMKM case. It was heard before Murray. I understand she did a competent job on the case. However, the naked short angle on CMKM has not been probed. Indeed, naked shorting itself -- clearly illegal -- has not been looked at sufficiently. Best, Don Bauder


Don Bauder Jan. 22, 2009 @ 3:53 p.m.

Response to post #12: The relationship between Congress and the SEC should be investigated. For one thing, the Congress has never given the SEC enough money to do its job. That has been deliberate -- protection for big donors. However, in recent years, it didn't make any difference, because the SEC had no intention of doing its job. There are questions about Democrats Chris Dodd and Barney Frank, and their relationships with Wall St. firms, banks, etc. Their Republican predecessors have also deserved some cocked eyebrows. Best, Don Bauder


D_Patch Jan. 22, 2009 @ 4:04 p.m.

Don, great job with the story but with good sound follow-up responses. Few are willing to give these issues much print so it is a pleasure to see it here. Trust Kotz if no one else. This is a man with a commitment to seek the truth at all costs. as for the rest, they all have their own hidden agenda's that come and go depending on the tides. I was fortunate to meet Mr. Aguirre once in New York at a conference he spoke at. Quite a man.


Don Bauder Jan. 22, 2009 @ 5:32 p.m.

Response to post #17: Yes, I was very disappointed with New York Times coverage of the Senate investigation into this SEC scam. The Wall Street Journal twisted the story against Aguirre. Yes, the fact that the SEC is owned by Wall Street law firms must be aired widely. Best, Don Bauder


wcvarones Jan. 25, 2009 @ 7:45 a.m.

Great article. I hope it gets wider exposure. I have linked it at polipundit.com and wcvarones.blogspot.com.

The sad thing is that Obama is putting Bush holdovers in charge at SEC, Treasury, and FDIC. Change we can believe in, indeed!


Don Bauder Jan. 25, 2009 @ 8:48 a.m.

Response to post #19: Your linking the article is appreciated. I agree it needs more exposure. Most Americans have no idea how corrupt the regulatory apparatus is, and how corrupt Wall Street is. Obama should have named Nell Minow of Corporate Library as head of the SEC. She is a reformer (daughter of Newt Minow). Her appointment would have sent a message to Wall Street: no more theft from the people. You're going to jail if business as usual continues. I agree that Summers and Geithner were not good choices, although Geithner may prove to be acceptable. Summers, along with Rubin and Greenspan, killed regulation of derivatives. That is enough to disqualify him from any position anywhere. Now, he is pushing for tax cuts when what we need is infrastructure investment. Get rid of him! Geithner was too tight with Paulson and Bernanke in the creation of programs that are pathetically ineffective. Geithner remains tight with Rubin. That is potentially disastrous. Sheila Bair, however, has been a good head of the FDIC, in my judgment. She might have been a better nominee for Treasury. Best, Don Bauder


a2zresource Jan. 26, 2009 @ 9:25 a.m.

Supposing change has come to Washington... would it be a nice change to see SEC transformed into a tightly-supervised department of the FBI? Can you imagine how many mail fraud counts there must be in a Madoff-style ponzi scheme where there's no real proof of any alleged legitimate securities transactions... just think of all the lulling letters...


Don Bauder Jan. 26, 2009 @ 9:40 a.m.

Response to post #21: Presently the SEC is a civil agency with no criminal authority. It desperately needs criminal authority. Many more Wall Streeters and their lawyers belong in prison. Today, the Justice Department has to move criminally, usually after the SEC has moved civilly. Putting the SEC under the FBI could facilitate the process. Best, Don Bauder


JohnnyVegas Jan. 26, 2009 @ 11:04 a.m.

Presently the SEC is a civil agency with no criminal authority. It desperately needs criminal authority. Many more Wall Streeters and their lawyers belong in prison

Agree 100%^^.

The problem is campaign money buys Washington, and until that is fixed there will always be huge problems like we are facing today (and faced at the end of the "roaring 20's").


Don Bauder Jan. 26, 2009 @ 12:57 p.m.

Response to post #23: Agreed. Money talks. But why must it nauseate? Best, Don Bauder


D_Patch Jan. 29, 2009 @ 5:54 a.m.

Money is and will always be the underlying issue. For example, we saw that the Director of Enforcement went before Congress and blamed limited staff and budgets as cause for their failures. FINRA representatives denied they held any responsibility towards this at all. Today, as Obama forced Citigroup to kill the purchase of a $50 Million jet they have had on order since 2005, we find that Mary Schapiro may receive upwards of $25 Million in her exit package from FINRA. Imagine the investigators this type of money, and that handed to other top executives, could employ. Wasn't the NYSE in a battle over how Grasso was compensated and now we find that Schapiro is not that far off based on years of service ratio's.

The story on Schapiro can be read here: http://investigatethesec.com/drupal-5.5/?q=node/575


Don Bauder Jan. 29, 2009 @ 7:11 a.m.

Response to post #25: Schapiro's FINRA compensation should be investigated -- absolutely. But the utter ineffectiveness of FINRA should also be probed. It won't be. The director of enforcement who went before Congress should have been asked what happened in the Aguirre/Mack disgrace. She should have been bounced then. I don't know whether she was asked anything about that. I doubt it very much -- even though two major studies have concluded that the whole thing was an egregious miscarriage of justice, and a case of regulators favoring big Wall St. law firms and their clients. Remember, the members of Congress who supposedly supervise the financial system are complicit in its corruption. Best, Don Bauder


D_Patch Jan. 29, 2009 @ 1:21 p.m.

Don, since we have now come to agree that Madoff happened because the SEC failed us and Congress failed us, let’s talk about accountability.

Certainly Linda Thomsen must go and most likely she will. This lady has more skeletons in her closet than a corrupt undertaker. She has not been a leader or a visionary when it comes to getting in front of crime. Firing Thomsen will not stop this madness but it will be a sign that the message came through that people want change.

Now how about Congress? We hear about clawbacks, and we listen to guys like Schumer pontificate about why everybody failed but BUT the Oversight of Congress so let me ask you, should the courts and SIPC clawback the campaign contributions Madoff made to Schumer and his fellow Congressmen? Better still, what level of integrity and accountability does it show for these members to not immediately return these monies on their own and before being demanded to do it? To think that they were enriched from a ponzi scheme in which so many were destroyed, should we trust those who keep the money in such a time of crisis? I suggest we write in to the members and ask them what they think about this.

Just my random thoughts.


Don Bauder Jan. 29, 2009 @ 2:42 p.m.

Response to post #27: Good thoughts. Linda Thomsen should have been out of there years ago. Schapiro must go even though she just got there. There should be a rule that any lawyer at the SEC cannot go to work for any law firm or corporation in the securities area within two years (not one) of leaving the commission. Yes, politicians who gave money to Bernie Madoff should be forced to give the money to educational and arts institutions such as Brandeis University that lost money because of the guy. Who would force the pols to do this? Only heat from the media, probably. Schumer is a Wall St. whore. But it's up to the voters to vote him out. One of the most poignant moments in hearings came several months ago. A Congressman asked both Bernanke and Paulson if Wall Street owed the people an apology. Neither would answer the question. This disqualifies them. Paulson is out with the change of administration, but Obama should get rid of Bernanke, too. And he should not replace him with Summers, who fought for financial deregulation and non-regulation of derivatives. Nell Minow of Corporate Library should be named head of the SEC. Best, Don Bauder


D_Patch Jan. 29, 2009 @ 5:25 p.m.

Don, how do we accelerate the message and get people to respond? It only works if enough people react and respond. Congress takes bribes, Corporations pay lobbyists, and people fight the fractured fight. How do we make fractured people united people?


Don Bauder Jan. 29, 2009 @ 7:59 p.m.

Response to post #29: Unfortunately, the recession has to turn into a depression, and people have to get hungry. Then they will revolt against the powers that have kept them in penury. Best, Don Bauder


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